SINGAPORE (Sept 23): Not unlike during the Cold War, the world today is about to be split into two trading blocs with deeply rooted opposing ideologies: one faction led by the US and the other controlled by communist China.
However, even with this new world order, experts believe regional economic groupings such as Asean as well as small states such as Singapore can continue to trade and thrive.
In a dialogue session held at the National University of Singapore on Sept 16, Alex Capri, visiting senior fellow and lecturer at NUS Business School, noted that the ongoing trade war will alter the global economic and trade landscape for years to come.
“We are headed for a world with trading blocs — one with countries that are more China-inclined on one side, while the other leans towards the European Union and the US. We see the world moving into a bipolar environment,” says Capri.
Deeper ideological issues at play
Stewart M Paterson, research fellow at the Hinrich Foundation, who was a speaker at the event, says the tensions between China and the US are more than just about trade — they are, in fact, about diametrically opposite political ideologies.
“It’s not really about the trade... Both sides have always been geopolitical, economic and ideological rivals,” he shares.
Looking ahead, Paterson expects a bipolar type of environment in the global economy and the trade sector — one in which the capitalist world isolates itself from the “pernicious influence” of the authoritarian world and vice versa.
To illustrate, Paterson says the face-off between China and the US mirrors the “almost non-existent” economic relationship between the former Soviet Union and the Communist bloc on one side, and the US and the rest of the world on the other, during the Cold War era.
Trump’s policies resonate with Americans
And although US President Donald Trump and his administration are being blamed for starting the trade war, Paterson says Trump‘s aims are very much in line with US national interests, unlike the previous administrations that adopted policies dominated by sectional interests.
In fact, for some time now, the US economy had been suffering from a supply-side shock that was causing deflation. Paterson says Western economic policymakers wanted to augment demand through fiscal and monetary policy, but this brought about side effects such as high indebtedness, rising asset prices and growing inequality of income and wealth.
“Broadly speaking, Trump is getting it right. He has moved the consensus in Washington in a way that [Barack] Obama and [George W] Bush never did. We might all dispute some of the methodology and tactics he uses, but at the end of the day, he has highlighted the elephant in the room: What kind of economic relationship can a liberal democracy have with a totalitarian regime?” says Paterson.
“Trump may lose the next presidential election, but he has won the agenda,” he adds.
How to side-step the trade war
Interestingly, Paterson says while the ongoing trade war is not helping the global economy, it is not the primary cause of the overall slowdown.
According to the World Trade Organization, world merchandise exports came in at US$19.48 trillion ($26.8 trillion). The US-China trade war, says Paterson, has cost the world about US$750 billion — which translates to about 4% of global trade.
“An awful lot is written and talked about a couple of points of global trade, so I don’t think it’s fair to say that the global slowdown is a consequence of the trade war. Demand is the same, but the trade war just shifts production from the cheapest to second-cheapest country,” he says.
Another welcome news is that trade is not coming to an end — especially not for Southeast Asia, as the region will continue to be a major source of supply for Western economies.
And although economies of export-driven countries such as Singapore are likely to suffer a slowdown when global trade shrinks, Paterson remains bullish on Asean’s ability to continue thriving.
For instance, the semiconductor industry is noted to be China’s “Achilles heel”, as the country depends significantly on supply from other countries.
“Should the US put a technology ban on China, they are going to need to find partners elsewhere,” Paterson says, and global supply chains might just have to start operating on “an ex-China basis” soon.
